CORPORATE AND OTHER LAW

Answer to questions are to be given only in English except in the case of

DIVISION A

Answer 1:
1. 1.1 Ans. D
1.2 Ans. B
1.3 Ans. C
{2 M Each}
2. Ans. C
3. Ans. C
4. Ans. C
5. Ans. D
6. Ans. B
7. Ans. A
8. Ans. B
9. Ans. A
10. Ans. D
11. Ans. C
12. Ans. D
13. Ans. D
14. Ans. A {1 M Each}
15. Ans. B
16. Ans. B
17. Ans. C
18. Ans. B
19. Ans. C
20. Ans. D
21. Ans. A
22. Ans. C
DIVISION B

Answer 2:
(a) Section 127 of the Companies Act, 2013 lays down the penalty for non-payment of
dividend within the prescribed time period of 30 days. According to this section
where a dividend has been declared by a company but has not been paid or the {2 M}
warrant in respect thereof has not been posted within 30 days from the date of
declaration of dividend to any shareholder entitled to the payment of dividend:
(1) every director of the company shall, if he is knowingly a party to the default,
be punishable with imprisonment maximum up to two years and with {2 M}
minimum fine of rupees one thousand for every day during which such default
continues; and
(2) the company shall be liable to pay simple interest at the rate of 18% per
annum during the period for which such default continues.

1|Page
 In the given question, the company was unable to post dividend warrant within 30
days from the date of declaration of dividend. Thus, the directors will be liable as per
the above provisions and the company is liable to pay simple interest. However, Mr. {2 M}
Ranjan will not succeed if he claims interest at 20% per annum interest as the limit
prescribed under section 127 is 18% per annum.

Answer:
(b) (i) Section 127 of the Companies Act, 2013 provides for punishment for failure to
distribute dividend on time. One of such situations is where a shareholder has
given directions to the company regarding the payment of the dividend and
those directions cannot be complied with and the same has not been
communicated to the shareholder.
{2 M}
In the instant case, A Ltd. has failed to communicate to the shareholder Mr. B
about the discrepancy (as per bank, account number as given by Mr. B
doesn't tally with the records of the bank) which led to non-compliance of his
direction regarding payment of dividend.
Hence, the penal provisions under section 127 will be attracted.

(ii) According to section 123 of the Companies Act, 2013, a company may, before
the declaration of any dividend in any financial year, transfer such percentage
of its profits for that financial year as it may consider appropriate to the {2 M}
reserves of the company. Such transfer is not mandatory and the percentage
to be transferred to reserves is at the discretion of the company.

As per the given facts, G Medical Instruments Limited has earned a profit of Rs. 910
crores for the financial year 2021-2022. It has proposed a dividend @ 10%.
However, it does not intend to transfer any amount to the reserves of the company
out of the profits of current year.
As per the provisions stated above, the amount to be transferred to reserves out of {2 M}
profits for any financial year is at the discretion of the company acting through its
Board of Directors. Therefore, at its discretion, if G Medical Instruments Limited
decides not to transfer any profit to reserves before the declaration of dividend at
10%, it is legally allowed to do so.

Answer:
(c) Sheif prospectus - As per the Explanation given in Section 31 of the Companies Act,
2013, the expression "shelf prospectus" means a prospectus in respect of which the
securities or class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus.
Provisions relating to issue of Shelf-prospectus:
(1) Filing of shelf prospectus with the registrar: According to section 31, any class
or classes of companies, as the Securities and Exchange Board may provide
by regulations in this behalf, may file a shelf prospectus with the Registrar at
the stage-
(i) of the first offer of securities included therein which shall indicate a
period not exceeding one year as the period of validity of such {2 M}
prospectus which shall commence from the date of opening of the first
offer of securities under that prospectus, and
(ii) in respect of a second or subsequent offer of such securities issued
during the period of validity of that prospectus, no further prospectus
is required.

2|Page
 (2) Filing of information memorandum with the shelf prospectus: A company
filing a shelf prospectus shall be required to file an information memorandum
containing all material facts relating to new charges created, changes in the
financial position of the company as have occurred between the first offer of {1 M}
securities or the previous offer of securities and the succeeding offer of
securities and such other changes as may be prescribed, with the Registrar
within the prescribed time, prior to the issue of a second or subsequent offer
of securities under the shelf prospectus:
(3) Intimation of changes: Provided that where a company or any other person
has received applications for the allotment of securities along with advance
payments of subscription before the making of any such change, the company
or other person shall intimate the changes to such applicants and if they {1 M}
express a desire to withdraw their application, the company or other person
shall refund all the monies received as subscription within fifteen days
thereof.
Memorandum together with the shelf prospectus shall be deemed to be a
prospectus: Where an information memorandum is filed, every time an offer of
securities is made under sub-section (2), such memorandum together with the shelf
prospectus shall be deemed to be a prospectus.

Answer:
(d) According to section 62 of the Companies Act, 2013, where at any time, a company
having a share capital proposes to increase its subscribed capital by the issue of
further shares, such shares shall be offered-
{1/2 M}
to persons who, at the date of the offer, are holders of equity shares of the company
in proportion, as nearly as circumstances admit, to the paid-up share capital on
those shares by sending a letter of offer subject to the following conditions, namely:-
(i) the offer shall be made by notice specifying the number of shares offered and
limiting a time not being less than fifteen days and not exceeding thirty days
from the date of the offer within which the offer, if not accepted, shall be
deemed to have been declined;
(ii) unless the articles of the company otherwise provide, the offer aforesaid shall
be deemed to include a right exercisable by the person concerned to
renounce the shares offered to him or any of them in favour of any other {1/2 M
person; and the notice referred to in clause (i) shall contain a statement of Each}
this right;
(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of
earlier intimation from the person to whom such notice is given that he
declines to accept the shares offered, the Board of Directors may dispose of
them in such manner which is not dis-advantageous to the shareholders and
the company.
In the instant case, X Ltd. issued a notice on 1st Feb, 2018 to its existing shares
holders offering to purchase one extra share for every five shares held by them. The
last date to accept the offer was 15th Feb, 2018 only. Mr. Kavi has given an {1/2 M}
application to renounce the shares offered to him in favour of Mr. Ravi, who is not a
shareholder of the company.
As nothing is specified related to the Articles of the company, it is assumed offer
shall be deemed to include a right of renunciation. Hence, Mr. Kavi can renounce the
shares offered to him in favour of Mr. Ravi, who is not a shareholder of the company. {1/2 M}
In the second part of the question, even if Mr. Ravi is a shareholder of X Ltd. then
also it does not affect the right of renunciation of shares of Mr. Kavi to Mr. Ravi.

3|Page
Answer 3:
(a) According to section 19 of the Companies Act, 2013 a company shall not hold any
shares in its holding company either by itself or through its nominees. Also, holding
company shall not allot or transfer its shares to any of its subsidiary companies and
any such allotment or transfer of shares of a company to its subsidiary company
shall be void.
Following are the exceptions to the above rule-
{21/2 M}
(a) Where the subsidiary company holds such shares as the legal representative
of a deceased member of the holding company; or
(b) Where the subsidiary company holds such shares as a trustee; or
(c) Where the subsidiary company is a shareholder even before it became a
subsidiary company of the holding company but in this case it will not have a
right to vote in the meeting of holding company.
In the given case one of the shareholders of holding company has transferred his
shares in the holding company to a trust where the shares will be held by {11/2 M}
subsidiary company. It means now subsidiary will hold shares in the holding
company. But it will hold shares in the capacity of a trustee.
Therefore, we can conclude that in the given situation S can hold shares in H. {1 M}

Answer:
(b) According to section 2(42) of the Companies Act, 2013, “Foreign company” means
any company or body corporate incorporated outside India which-
(a) has a place of business in India whether by itself or through an agent,
physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
According to the Companies (Registration of Foreign Companies) Rules, 2014,
“electronic mode” means carrying out electronically based, whether main server is
installed in India or not, including, but not limited to-
(a) business to business and business to consumer transactions, data interchange
{1/2 M
and other digital supply transactions;
Each for
(b) offering to accept deposits or inviting deposits or accepting deposits or
Any 6
subscriptions in securities, in India or from citizens of India; Points}
(c) financial settlements, web-based marketing, advisory and transactional
services, database services and products, supply chain management;
(d) online services such as telemarketing, telecommuting, telemedicine,
education and information research; and
(e) all related data communication services,
Whether conducted by e-mail, mobile devices, social media, cloud computing,
document management, voice or data transmission or otherwise.
(i) In the given situation, Red Stone Limited is registered in Singapore. However,
it does not have a place of business in India whether by itself or through an
agent, physically or through electronic mode; and does not conduct any
business activity in India in any other manner. Mere holding of board {1 M}
meetings and executing business decisions in India cannot be termed as
conducting business activity in India. Hence, M/s Red Stone Limited is not a
foreign company as per the Companies Act, 2013.
(ii) In the given situation, Xen Limited Liability Company is registered in Dubai
and has installed its main server in Dubai for maintaining office automation
software by Cloud Computing for its client in India. Thus, it can be said that
M/s Xen Limited Liability Company has a place of business in India through {1 M}

electronic mode and is conducting business activity in India. Hence, Xen

4|Page
Answer:
(c) Section 5 of Limited Liability Partnership Act, 2008 provides any individual or body
corporate may be a partner in an LLP. However, an individual shall not be capable of
becoming a partner of a LLP, if—
(a) he has been found to be of unsound mind by a Court of competent jurisdiction {1 M}
and the finding is in force;
(b) he is an undischarged insolvent; or
(c) he has applied to be adjudicated as an insolvent and his application is
pending.
Further, Section (2)(1)(e) provides that a Body Corporate it means a company as
defined in „clause (20) of section 2 of the Companies Act, 2013 and includes—
(i) an LLP registered under this Act; {1 M}
(ii) an LLP incorporated outside India; and
(iii) a company incorporated outside India,
but does not include—
(i) a corporation sole;
(ii) a co-operative society registered under any law for the time being in force;
and
(iii) any other body corporate (not being a company as defined in „clause (20) of
section 2 of the Companies Act, 20132‟ or a limited liability partnership as {2 M}
defined in this Act), which the Central Government may, by notification in the
Official Gazette, specify in this behalf.
Therefore, HUF is not covered in the definition of body corporate and cannot be
partner in LLP.

Answer:
(d) Preamble: The Preamble expresses the scope, object and purpose of the Act more
comprehensively than the Long Title. The Preamble may recite the ground and the
cause making a statute and the evil which is sought to be remedied by it.
Like the Long Tile, the Preamble of a Statute is a part of the enactment and can
legitimately be used for construing it. However, the Preamble does not over-ride the
plain provision of the Act but if the wording of the statute gives rise to doubts as to 1/2
its proper construction, e.g., where the words or phrase has more than one meaning {1 M}
and a doubt arises as to which of the two meanings is intended in the Act, the
Preamble can and ought to be referred to in order to arrive at the proper
construction.
In short, the Preamble to an Act discloses the primary intention of the legislature but
can only be brought in as an aid to construction if the language of the statute is not
clear. However, it cannot override the provisions of the enactment.
Proviso: The normal function of a proviso is to except something out of the
enactment or to qualify something stated in the enactment which would be within
its purview if the proviso were not there. The effect of the proviso is to qualify the
preceding enactment which is expressed in terms which are too general. As a general
rule, a proviso is added to an enactment to qualify or create an exception to what is
in the enactment: ordinarily a proviso is not interpreted as stating a general rule. {11/2 M}
It is a cardinal rule of interpretation that a proviso to a particular provision of a
statute only embraces the field which is covered by the main provision. It carves out
an exception to the main provision to which it has been enacted as a proviso and to
no other. (Ram NarainSons Ltd. vs. Assistant Commissioner of Sales Tax, AIR 1955
SC 765).

5|Page
Answer 4:
(a) Under section 20 of the Companies Act, 2013 a document may be served on a
company or an officer thereof by sending it to the company or the officer at the
registered office of the company by registered post or by speed post or by courier
service or by leaving it at its registered office or by means of such electronic or other {21/2 M}
mode as may be prescribed. However, in case where securities are held with a
depository, the records of the beneficial ownership may be served by such depository
on the company by means of electronic or other mode.
Under section 20 (2), save as provided in the Act or the rule thereunder for filing of
documents with the registrar in electronic mode, a document may be served on
Registrar or any member by sending it to him by post or by registered post or by
speed post or by courier or by delivering at his office or address, or by such {21/2 M}
electronic or other mode as may be prescribed. However, a member may request for
delivery of any document through a particular mode, for which he shall pay such fees
as may be determined by the company in its annual general meeting.

Answer:
(b) Section 140 of the Companies Act, 2013 prescribes procedure for removal of
auditors. Under section 140 (1) the auditor appointed under section 139 may be
removed from his office before the expiry of his term only by a special resolution of
the company, after obtaining the previous approval of the Central Government in {21/2 M}
that behalf in the prescribed manner.
From this sub section it is clear that the approval of the Central Government shall be
taken first and thereafter the special resolution of the company should be passed.
Provided that before taking any action under this sub-section, the auditor concerned
shall be given a reasonable opportunity of being heard.
Therefore, in terms of section 140 (1) of the Companies Act, 2013 read with Rule 7 {1/2 M}
of the Companies (Audit & Auditors) Rules, 2014, the following steps should be taken
for the removal of an auditor before the completion of his term:
The application to the Central Government for removal of auditor shall be made in
Form ADT-2 and accompanied with fees as provided for this purpose under the
Companies (Registration Offices and Fees) Rules, 2014.
The application shall be made to the Central Government within thirty days of the {11/2 M}
resolution passed by the Board.
The company shall hold the general meeting within sixty days of receipt of approval
of the Central Government for passing the special resolution.
Hence, in the instant case, the decision of ABC Ltd. to remove XYZ & Associates, auditors
of the company at the general meeting held on 25-5-2022 subject to approval of Central {1/2 M}
Government is not valid. The Approval of the Central Government shall be taken before
passing the special resolution in the general meeting.
Answer:
(c) Interim Dividend: According to section 123(3) of the Companies Act, 2013, the
Board of Directors of a company may declare interim dividend during any financial
year or at any time during the period from closure of financial year till holding of the
annual general meeting out of the surplus in the profit and loss account or out of {2 M}
profits of the financial year for which such interim dividend is sought to be declared
or out of profits generated in the financial year till the quarter preceding the date of
declaration of the interim dividend.
However, in case the company has incurred loss during the current financial year up
to the end of the quarter immediately preceding the date of declaration of interim
dividend, such interim dividend shall not be declared at a rate higher than the {1 M}
average dividends declared by the company during the immediately preceding three
financial years.

6|Page
 In the instant case, Interim dividend by Cadila Ltd. shall not be declared at a rate
higher than the average dividends declared by the company during the immediately
preceding three financial years [i.e. (12+15+18)/3 = 45/3 =15%]. Therefore, {1 M}
decision of Board of Directors to declare 15% of the interim dividend for the current
financial year is tenable.

Answer:
(d) According to Section 134(1) of the Companies Act, 2013, the financial statement,
including consolidated financial statement, if any, shall be approved by the Board of
Directors before they are signed on behalf of the Board by the chairperson of the
company where he is authorised by the Board or by two directors out of which one
{2 M}
shall be managing director, if any, and the Chief Executive Officer, the Chief Financial
Officer and the company secretary of the company, wherever they are appointed, or
in the case of One Person Company, only by one director, for submission to the
auditor for his report thereon.
In the instant case, the Balance Sheet and Profit and Loss Account have been signed
only by Mr. Choksey and Mr. Patel, the directors. In view of Section 134(1) of the {1/2 M}
Companies Act, 2013, Mr. Shukla, the Managing Director should have been one of
the two signing directors.
Further, since the company has also employed a full-time Secretary, he should also {1/2 M}
sign the Balance Sheet and the Statement of Profit and Loss.

Answer 5:
(a) Section 68(2) of the Companies Act, 2013 deals with the Conditions required for
buy-back of shares. As per the Act, the company shall not purchase its own shares
or other specified securities unless-
(a) The buy-back is authorized by its articles;
(b) A special resolution has been passed at a general meeting of the company {11/2 M}
authorizing the buy-back: except where—
(1) the buy-back is, ten per cent or less of the total paid-up equity capital
and free reserves of the company; and
(2) such buy-back has been authorised by the Board by means of a
resolution passed at its meeting;
Time limit for Completion of Buy Back: As per section 68(4), every
buy-back shall be completed within a period of one year from the date
of passing of the special resolution, or as the case may be, the
resolution passed by the Board under sub-section (2).
Ratio of aggregate debts: Provision also specifies that ratio of the
aggregate debts (secured and unsecured) owed by the company after {1 M}
buy back is not more than twice the paid up capital and its free
reserves. However, Central Government may prescribe higher ratio of
the debt for a class or classes of companies.
As per the stated facts, Xgen Ltd. has a paid up equity capital and free
reserves to the extent of Rs. 50,00,000. The company planned to buy
back shares to the extent of Rs. 4,50,000.
Referring to the above provisions, the answers will be as follows:
1. No, special resolution will not be required as the buyback is less than
10% of the total paid-up equity capital and free reserves (50,00,000 x
10 / 100= 5,00,000) of the company, but such buy back must be {1/2 M}
authorized by the Board by means of a resolution passed at its
meeting.
2. Time limit for completion of buy back will be- within a period of one
{1/2 M}
year from the date of passing of the resolution by the Board.

7|Page
 3. The ratio of the aggregate debts (secured and unsecured) owed by the
company after buy back should not be more than twice the paid up
capital and its free reserves. {1/2 M}
The above buy-back is possible when backed by the authorization by
the articles of the company.

Answer:
(b) {According to Section 7 of LLP Act, 2008 every LLP shall have at least two
designated partners who are individuals and at least one of them shall be a resident
in India. Further, explanation to the section provides, the term “resident in India”
means a person who has stayed in India for a period of not less than one hundred
twenty days during the financial year.}{3 M} {Hence, in the given problem, besides
Mr. Ram and Mr. Raheem, Mr. Albert should also be designated partners.}{1 M}

Answer:
(c) Transfer to reserves (Section 123 of the Companies Act, 2013): A company
may, before the declaration of any dividend in any financial year, transfer such
percentage of its profits for that financial year as it may consider appropriate to the
reserves of the company. Therefore, the company may transfer such percentage of {2 M}
profit to reserves before declaration of dividend as it may consider necessary. Such
transfer is not mandatory and the percentage to be transferred to reserves is at the
discretion of the company.
As per the given facts, YZ Limited has earned a profit of Rs. 910 crores for the financial
year 2017-18. It has proposed a dividend @ 10%. However, it does not intend to transfer {1 M}
any amount to the reserves of the company out of current year profit.
As per the provisions stated above, the amount to be transferred to reserves out of
profits for a financial year is at the discretion of the YZ Ltd. acting vide its Board of {1 M}
Directors.

Answer:
(d) (i) The appointment and re-appointment of auditor of a Government Company or
a government controlled company is governed by the provisions of section
139 of the Companies Act, 2013 which are summarized as under:
The first auditor shall be appointed by the Comptroller and Auditor General of
India within 60 days from the date of incorporation and in case of failure to do {2 M}
so, the Board shall appoint auditor within next 30 days and on failure to do so
by Board of Directors, it shall inform the members, who shall appoint the
auditor within 60 days at an extraordinary general meeting (EGM), such
auditor shall hold office till conclusion of first Annual General Meeting.
In case of subsequent auditor for existing government companies, the
Comptroller & Auditor General of India shall appoint the auditor within a
period of 180 days from the commencement of the financial year and the {1 M}
auditor so appointed shall hold his position till the conclusion of the Annual
General Meeting.
(ii) The situation as stated in the question relates to the creation of a casual
vacancy in the office of an auditor due to resignation of the auditor before
the AGM in case of a company other government company. Under section 139
(8)(i) any casual vacancy in the office of an auditor arising as a result of his
resignation, such vacancy can be filled by the Board of Directors within thirty {2 M}
days thereof and in addition the appointment of the new auditor shall also be
approved by the company at a general meeting convened within three
months of the recommendation of the Board and he shall hold the office till
the conclusion of the next annual general meeting.

8|Page
Answer 6:
(a) Issue of Bonus Shares
According to section 63 (1) of the Companies Act, 2013, a company may issue fully
paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account. {2 M}
However, no issue of bonus shares shall be made by capitalising reserves created by
the revaluation of assets.
Section 63 (2) provides that the company can issue bonus shares only when the
partly paid -up shares, if any outstanding on the date of allotment, are made fully
paid-up.
(A) The following sources can be used by the company to issue bonus shares:
1. General Reserve
2. Securities Premium {1 M}
3. Surplus in statement of P&L
(B)
Particulars Amount
Amount of bonus shares to be 90,000 shares x ¼ = 22,500 shares
issued
Amount that ought to be capitalized 22,500 x 10 per share = 2,25,000
for issue of bonus shares
Total amount available to be = 1,20,000 + 25,000 + 2,00,000 = {2 M}
capitalized from free reserves to 3,45,000
issue bonus shares
Hence, the amount to be capitalized 2,25,000
from free reserves to issue bonus
shares will be

Answer:
(b) As per the provisions of Section 77 of the Companies Act, 2013, in case the charge
was not registered within 30 days of creation of the charge, the Registrar may, on an
1/2
application by the company, allow such registration to be made within a period of 60 {1 M}
days of such creation (i.e. another 30 days are granted after the expiry of original 30
days), on payment of additional fees as prescribed.
Procedure for Extension of Time Limit: For seeking extension of time, the company is
required to make an application to the Registrar in the prescribed form. It should be
1/2
supported by a declaration from the company signed by its company secretary or a {1 M}
director that such belated filing shall not adversely affect the rights of any other
intervening creditors of the company.
The application so made must satisfy the Registrar that the company had sufficient
cause for not filing the particulars and the instrument of charge, if any, within the
original period of thirty days. {2 M}
Only then he will allow registration of charge within the extended period. Further,
requisite additional fee or advalorem fee, as applicable, must also be paid.

Answer:
(c) Under section 5 of the Foreign Exchange Management Act, 1999, and Rules relating
thereto, some current account transactions require prior approval of the Central
Government, some others require the prior approval of the Reserve Bank of India, {2 M}
some are freely permitted transactions and some others are prohibited transactions.
Accordingly,

9|Page
 (i) It is a current account transaction, where M is required to take approval of
the Central Government for drawal of foreign exchange for remittance of hire
charges of transponders. {1 M
(ii) Withdrawal of foreign exchange for payment related to call back services of Each}
telephone is a prohibited transaction. Hence, Mr. P cannot obtain US $ 2,000
for the said purpose.

Answer:
(d) Where the language used in a statute is capable of more than one interpretation, the
most firmly. Established rule for construction is the principle laid down in the
Heydon's case. This rule enables, consideration of four matters in constituting an act:
(1) what was the law before making of the Act, {1 M}
(2) what was the mischief or defect for which the law did not provide,
(3) what is the remedy that the Act has provided, and
(4) what is the reason for the remedy.
The rule then directs that the courts must adopt that construction which 'shall
suppress the mischief and advance the remedy'. Therefore, even in a case where the
usual meaning of the language used falls short of the whole object of the legislature,
a more extended meaning may be attributed to the words, provided they are fairly
susceptible of it. If the object of any enactment is public safety, then its working {11/2 M}
must be interpreted widely to give effect to that object. Thus in the case of
Workmen's Compensation Act, 1923 the main object being provision of
compensation to workmen, it was held that the Act ought to be so construed, as far
as possible, so as to give effect to its primary provisions.
However, it has been emphasized by the Supreme Court that the rule in Heydon's
case is applicable only when the words used are ambiguous and are reasonably {1/2 M}
capable of more than one meaning [CIT v. Sodra Devi (1957) 32 ITR 615 (SC)].

**

10 | P a g e